NC H889

S Corporations may elect to be taxed at the entity level on their North Carolina taxable income at the individual income tax rate, with the election made on the timely filed annual return and irrevocable after the return due date.

Partnerships (other than publicly traded partnerships) may similarly elect to be taxed at the entity level on North Carolina taxable income, but only if all partners are individuals, estates, trusts described in section 1361(c)(2) of the Code, or organizations described in section 1361(c)(6) of the Code.

Shareholders and partners of taxed entities receive corresponding deductions and additions to their adjusted gross income to avoid double taxation, with shareholders and partners also entitled to tax credits for income taxes paid to other states by the entity.

If a taxed entity fails to pay tax owed within 60 days of notice, the entity's owners lose their deduction for that entity's income and must include it as an addition to taxable income.

The act is effective for taxable years beginning on or after January 1, 2021, allowing pass-through entities to mitigate the impact of the federal SALT cap by paying tax at the entity level instead of at the individual owner level.